Kenyan firms usurp foreign investors in new projects drive

Local investors have pumped more than Sh100 billion into new projects in the economy the past financial year, overtaking foreign direct investments as the major source of capital project finance and challenging the policy slant in favour of the latter.

Investment projects registered by domestic investors grew by a third from Sh79 billion to Sh104.4 billion in the year to June 2010, overtaking FDI, which dropped from Sh85 billion to Sh51 billion — a 40 per cent reverse — during the period.

They have created 11,930 new job openings, absorbing 9,148 Kenyans and only 508 expatriates, data from the Kenya Investment Authority (Keninvest) shows, prompting calls for greater policy support to local entrepreneurs.

The data only represents investments processed by the authority and leaves out the ones channelled through professional or consulting groups and those that fall outside priority sectors.

The surge explains a trend where lending by commercial banks to the private sector has picked up over the last two years and, for the first time, give a pointer to the impact the ongoing infrastructure projects - especially roads - are having on the country’s productive capacity.

“The biggest help the government can give to domestic investors is to upgrade and expand infrastructure, including roads. This will open up new areas for investment and boost access to markets,” said Prof Joseph Kieyah, an analyst at the Kenya Institute for Public Policy Research and Analysis (Kippra).

Despite the growth in domestic investments, FDI is still important for economic growth in terms of impact.

Cushioned

To obtain an investment certificate from Keninvest, local investors require at least Sh1 million while a foreigner requires Sh8 million ($100,000).

The growth of domestic investments means the country can be cushioned from a slump in FDI which is more sensitive to a rise in political risk, helping to create new jobs, generate more revenues for the taxman and stabilise the economy.

“Local investors have internalised political risk which foreign counterparts fret. Confidence is now much higher after the adoption of the new Constitution,” Prof Kieyah said.

The government has been using a mix of incentives, including tax holidays and offering free land parcels in a bid to woo more FDI.

The booming construction sector took the lion’s share of the new investments, receiving 79.4 per cent of the new investments made by citizens last year, followed by energy sector at 13.9 per cent and manufacturing at five per cent.

In comparison, mining sector swallowed most of the foreign direct investments, taking up 31.5 per cent of all the projects registered by foreign interests last year; followed by tourism (17.7 per cent), services (17 per cent), manufacturing (14 per cent) and telecoms nine per cent.